Meanwhile, other companies which have access to Hong Kong banking
system have been borrowing from banks in Hong Kong as credits are
much cheaper here (from the perspective of Hong Kong banks,
lending to Chinese companies are more profitable than, say
mortgage lending in Hong Kong), leading to the unintentional tightening of credit in Hong
Kong, as I have pointed out long time ago.

As a result of that, Hong Kong banks exposure to China has surged
very dramatic in the past year and half. In fact, according to
Bloomberg
Brief’sMichael McDonough, Hong Kong banks exposure to the
Mainland China is now larger than the size of Hong Kong economy.

The good thing is that 83% of the exposure to China are claims on
Chinese banks according to Michael McDonough, which are largely
state-owned and will likely be backstopped by the government in
the event of crisis, so I am not sure if I should be very much
worried by this.

That said, this isn’t a good thing to see banks that exposed to
an economy which is actually in trouble, even though the exposure
still looks very safe for the time being.